Four schemes have been shortlisted for a £1bn competition to develop technology to capture and permanently store emissions from fossil fuel power plants.

Plans for new coal-powered stations with carbon capture and storage (CCS) at Grangemouth, Scotland, and Drax, North Yorkshire; a coal-powered project on Teesside and a bid to fit the technology on to an existing gas plant at Peterhead, Scotland, are on the shortlist, the Department of Energy and Climate Change (Decc) said.

Ministers are depending on getting the technology working at scale as a major part of decarbonising electricity generation by 2030 in order to meet targets to tackle climate change.

It is hoped carbon capture and storage will be able to capture up to 90% of carbon emissions from fossil fuel power stations and store them underground in places such as old oil fields so they do not pollute the atmosphere.

Energy and climate change secretary, Ed Davey, said: "The projects we have chosen to take forward have all shown that they have the potential to kickstart the creation of a new CCS industry in the UK, but further discussions are needed to ensure we deliver value-for-money for taxpayers.

"Today's announcement is an important step towards an exciting new industry, one that could help us reduce our carbon emissions and create thousands of jobs."

Three of the shortlisted bids have also applied for European commission funding to develop carbon capture and storage, with the commission making a final decision on whether to support a UK project by the end of the year.

The bids were chosen from eight submitted. The four shortlisted schemes will be in negotiation with the government before a decision on which projects to support further is taken in the new year, Decc said.